Limelight Networks Inc (LLNW) Q1 2019 Earnings Call Transcript

Contents:

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Limelight Networks First Quarter 2019 Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Dan Boncel, Limelight's Chief Accounting Officer. Please go ahead.

Daniel Boncel -- Chief Accounting Officer

Good afternoon, and thank you for joining the Limelight Networks' first quarter 2019 financial results conference call. This call is being recorded on April 17, 2019, and will be archived on our website for approximately 10 days.

Let me start by quickly covering the safe harbor. We would like to remind everyone that we will be making forward-looking statements on this call. Forward-looking statements are all statements that are not strictly statements of historical fact, such as our outlook for 2019 and beyond, our priorities, our expectations, our operational plans, business strategies, secular trends and product and feature functionality announcements. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance.

For more information, please refer to the risk factors discussed in our periodic filings, including our most recent Annual Report on Form 10-K. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law.

Joining me on the call today are, Bob Lento, our Chief Executive Officer; and Sajid Malhotra, our Chief Financial Officer. We will be available during the Q&A session at the end of prepared remarks from Bob and Sajid.

I would now like to turn the call over to Bob Lento.

Robert A. Lento -- President, Chief Executive Officer and Director

Thanks, Dan, and good afternoon. Today, we announced our first quarter results. We entered 2019 expecting the first quarter would mark the low point for the year in our financial results, but would set the foundation for our best year ever across many operational and financial measures. Results were largely in line with our expectations as we invested heavily in opportunities that we expect to yield significant revenue in the second half of 2019.

Revenue in the first quarter was $43.3 million, GAAP net loss was $8.6 million, non-GAAP net loss was $5.1 million and adjusted EBITDA was a loss of $600,000. We mentioned previously that we are focusing our strategy on low-latency, high-quality video on a global scale and we continue to execute against that plan. Last year, we moved away from customers we believe did not value our services at a reasonable price point and were not aligned with our strategic goals. This move freed up capacity for customers who value our high quality and global scale.

We also successfully renegotiated contracts with many of our largest customers, many of which are focused on our high-quality video delivery capabilities. These conscious decisions impacted revenue in the first quarter of this year compared to the first quarter of last year, but we believe we are now better positioned for growth and long-term financial success as a result.

As part of this strategy, in Q4, we announced a strategic partnership with Ericsson. We continue to execute on our plan as the exclusive provider of content delivery capabilities on the Ericsson Unified Delivery Network, or UDN, which is an edge cloud platform with points of presence within more than 40 service provider networks. This partnership is changing our business model in how we work with local service providers. We are converting existing Ericsson locations to Limelight's infrastructure and operating software. Since the beginning of the year, we have already converted 14 locations across six countries including Thailand, Germany, Brazil, Mexico, Colombia and Australia, and we have a considerable pipeline of additional sites that we're working on.

I also had the opportunity present with Ericsson at their Global Edge Forum at Mobile World Congress last month in Barcelona. I met with many C-level executives representing some of the largest service providers in the world. They were very interested in our partnership with Ericsson and are looking forward to adding our delivery capabilities inside their networks. I continue to believe this partnership will be a game changer for us in the future generating significant revenue for us in the second half of 2019 and beyond.

In addition to the capacity added to the conversion of Ericsson locations, we continue to focus on expanding our capacity through software enhancements and expansion of our network footprint into new locations that are important to our customers and support key initiatives. Our R&D team has built and throughout this year we'll be deploying in production, a new version of our network software that will drive increased performance and throughput. We anticipate increasing global capacity by at least 20% once this roll-out is complete. We're also pursuing an aggressive network expansion plan that includes building new pops in geographies that are important to our customers. Additionally, we're making specific network-related investments to better support key initiatives like edge services and real-time streaming. We expect these efforts to have a positive impact on our customers and drive revenue growth in the future.

Customer acquisition was up 50% year-over-year with good distribution across the regions. As a result, new customer revenue was ahead of plan in Q1. This momentum was driven by our new global sales leader, Tom Marth. We're pleased with his contributions to-date and expect his leadership to drive more success across sales as the year progresses.

During the quarter, we on-boarded several significant new customers that we expect to drive revenue growth. Two great examples include Major League Baseball, where we have started to stream games on a daily basis, and HBO, who has added Limelight to deliver its content to millions of viewers across the globe. As OTT continues to grow, the companies like Apple and Disney have announced their intent to offer their own subscription-based video on demand services. We believe events like these further support our decision to focus our strategy on low-latency, high-quality video delivery on a global scale. We are in an opportunity-rich environment and are well positioned to capitalize on these trends. We're excited about these opportunities and many more we expect to share with you in the near future.

As we've made progress on these priorities, we continue to see evidence of improving customer satisfaction as we delivered record traffic in Q1. Traffic was over 10% higher than our previous record set in the third quarter of 2018. A few of our biggest customers had major traffic events during the quarter and I'm pleased that they trusted our ability to deliver high quality experiences to their end users. We expect this momentum to strengthen throughout 2019.

We continue to see a high degree of interest in our recently announced Limelight Realtime Streaming, which is the industry's first global, scalable sub-second live video streaming solution that is natively supported by major browsers and devices. At the recent NAB show in Las Vegas, we won two new awards for this product in addition to the three we won at IBC last year.

We are seeing widespread interest in all regions from industry spanning broadcast, online gaming and betting, sports, auctions and many others. So far this year, we have closed several real-time streaming deals with some of these customers already in production and others in the process of onboarding. We also have a number of customers in the testing phase. We're excited about this growing level of interest and revenue potential and we are pleased with this new offering clearly establishes Limelight as the industry leader in sub-second global video delivery.

We're pleased with our continued progress in edge services, which leverages our infrastructure to address our customers needs at the edge for low latency and connectivity. In the first quarter, we closed a number of new edge service deals and continue to have a strong and growing pipeline. As announced in January, we expanded our leadership in this area by hiring Mike Palackdharry, Senior Vice President of Strategic Solutions. We are pleased with his contributions so far this year and expect his efforts to accelerate momentum in the new and growing edge services market.

In summary, our financial performance in the first quarter of 2019 was largely in line with our expectations. Our momentum was multi-dimensional with much activity and progress across all regions multiple product lines, both existing and new customers and our various partnerships. With the first quarter now behind us, I remain confident that 2019 will be our best year ever on many fronts. As a reminder, we previously announced that Sajid, Mike DiSanto, and I have chosen this year to replace half of our base salary with equity at an discounted market prices based on our confidence to meet our plan for the year.

We have strong conviction at our management teams' ability to execute on our strategy, to capture the tremendous growth potential we see in our opportunity rich environment. We recognize that we have tough comps again in the second quarter as we continue to invest heavily in our business to ensure that we are well positioned to serve the demand we anticipate in the second half of 2019 and beyond. We expect the second quarter performance to be stronger than the first and we expect strong revenue and traffic growth in the second half of 2019 as new deals begin to contribute more meaningfully to our financial performance. We believe our decisions and efforts will yield the right results and translate into sustainable above-market shareholder returns.

I'm pleased with the hard work of our global team and would like to express my gratitude for the momentum they together have generated in the first quarter. I've never been as excited as I am at this moment about the industry we sever and Limelight's future.

With that, I'll turn the call over to Sajid to discuss the first quarter financial performance in greater detail and our guidance for 2019. Sajid?

Sajid Malhotra -- Chief Financial Officer

Thanks, Bob, and good afternoon. Q1 by most financial measures was expected to be a low point and it came in roughly in line with our expectations. I'm excited about what the remainder of the year will bring. I have not seen this level of business activity and momentum in my time with Limelight. I will address these items a bit later, but first let me tell you a little bit about the first quarter.

Starting with revenue, in the first quarter, we reported revenue of $43.3 million. Coming off a tough comp from Q1 last year, revenue was down 17% year-over-year. Foreign exchange headwinds in the quarter amounted to approximately $300,000, almost 1%. During the first quarter, we have on-boarded and are now working with almost all major US broadcasters. It has taken a long time to regain their trust by demonstrating our reliability and superior performance. As they continue to work with us, we believe we will gain more market share with these customers and this along with several other opportunities will fuel our growth for the remainder of 2019 and beyond. International customers accounted for 41% of total revenue in Q1 compared to 38% a year ago. Approximately 18% of our fourth quarter revenue was a non-US dollar denominated currency. Our top 20 customers account for approximately 70% of our total revenue compared to 73% last year.

We mentioned last quarter, we believe that product innovation, the Limelight Realtime streaming are emphasis on evolving edge compute marketplace, as well as a network performance would lead to higher customer count in 2019. We are pleased to report churn levels are at the lowest levels in over five years. This is also a component of our revenue growth plan. We expect the new discipline and procedures instilled with our new sales management team will lead to an increased customer count and contribute to revenue growth this year.

Moving on to operating expenses, during the first quarter, we accelerated our network expansion plans by adding capacity. This added capacity will be required to serve the traffic demands we see coming in the second quarter and second half of 2019. This added capacity creates expense which will gradually be offset by revenue as traffic ramps. Our egress capacity has reached 45 terabits per second as of the end of the first quarter, up almost 50% from the end of the first quarter last year. We have also invested in the implementation, testing, conversion and assimilation of Ericsson UDN POPs. We expect the pace to pick up and our reporting progress on our website.

Material revenue from our customers should begin to flow over the combined assets by late 2Q. G&A expense decreased $2.0 million due to lower litigation related expense. R&D decreased $400,000 due to lower employee compensation. Offsetting these was an increase in sales and marketing tied to a planned expansion of these items.

Interest income, expense and other income and expense netted to income of $200,000 in Q1 this year, consistent with last year. On a GAAP basis, we lost $0.07 per basic share this quarter compared to break-even per share last year. Adjusted EBITDA was a $600,000 loss for the first quarter of 2019. We had cash and marketable securities of $38.7 million at the end of the first quarter. We expect the first quarter to be the highest cash usage quarter in terms of operating activities for the year. Low Q4 revenues, annual bonuses, higher payables and increased CapEx drove the decline in cash balance. We spent over $5 million in capital expenditures during the quarter as we expand and refresh our network capacity. We expect to return to positive cash flows from operations in the second quarter.

At the end of the first quarter, DSO was 59 days compared to 52 days at the end of last year, as some customers appeared to manage their payable balances at the end of the quarter that we didn't see at the end of last year. We normally expect DSO to be between 50-day and 55-day range.

Our balance sheet remains very strong. This month, we made our last payment to Akamai under the previously announced lawsuit settlement and we continue to remain debt free. As of March 31st, we had approximately 114.9 million shares outstanding. Total employee count at the end of the quarter was 562, up 18 from the end of the first quarter last year. The increase primarily relates to additional sales personnel and is consistent with our strategy. We expect to continue to add to these numbers to meet our revenue targets for the year. Employee count and G&A function should remain stable.

Moving to guidance, we expect 2019 to be a record year across almost all financial measures and are maintaining our previous guidance. We continue to expect revenue of between $215 million and $225 million; GAAP EPS of between break-even and $0.10 per share and non-GAAP EPS in the range of $0.10 and $0.20. Adjusted EBITDA is expected to be between $30 million and $40 million. We see capital expenditures in the range of between $20 million and $24 million. For revenue and related profitability, Q1 was expected to be the low point in our 2019 plan. The reported results were slightly ahead of or close to our plan. At the same time, there were many, many operational and non-financial targets achieved that laid the foundation for us to deliver against our full-year guidance.

Ericsson conversion is gaining speed. Revenue headwind from customer declines has slowed significantly, and traction in new customers is very strong. Real-time streaming is receiving industry wide recognition and we are onboarding customers for this offering. POP footprint expansion is allowing us to serve countries and regions with higher quality and low latency and we are engaged in a number of mega deals for our edge offering.

While we do not give quarterly guidance, in a reversal of last year's trend, we expect the remaining three quarters to get materially and progressively better. I believe the sequential revenue growth will be unlike anything we have ever experienced and with increasing momentum. We expect second half revenue could be 30% higher than second half of last year and the first half of this year. This will set up a customer base and a revenue stream from a product assortment that bodes well for 2020 and beyond. Additionally, in the second half of the year, we should start to see incremental revenue being delivered from the added capacity made available from the Ericsson partnership. We now have over 90 points of presence within our network and we expect that to increase to over 160 by the end of the year as we accelerate the build-out with Ericsson partners. So we are excited and continue to execute against our plan.

With that, we'll open the call up to your questions. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Michael Turits of Raymond James. Please go ahead.

Robert Majek -- Raymond James -- Analyst

Good afternoon. This actually Robert Majek on for Michael today. In order to hit the midpoint of the full year revenue guide, you have to ramp from $43 million in revenue in Q1 to roughly $60 million or $65 million or so in Q4. Can you just bridge us on how we get there from here? How much growth is from existing customers, how much is from the Ericsson deal and how much is from other new products and partnerships? And then how much visibility or confidence do you have that you can hit your target in each one of those buckets?

Sajid Malhotra -- Chief Financial Officer

So, we have not broken out the revenue by the different components, but fair to say that the run rate that we have and the business momentum that we have gives us confidence in the guidance that we're giving at this point. This is something that we're trying to execute against the plan. As you can imagine, the run rate exiting any quarter establishes kind of where we should be from the base business standpoint. And if you look at it historically, you have a higher Q1 and high Q4 and then a little bit of a slowdown that occurs seasonally in Q2, Q3. We don't think that that will be the case this year. In fact, as you heard me say earlier, we expect Q2 to be significantly higher than Q1 and continue to ramp up into Q3, which would be quite different from what we experienced historically, and then onto Q4.

As far as Ericsson goes and along with the other initiatives, I have said that they should contribute in the high single digits in terms of the overall plan, so somewhere between $7 million and $9 million kind of from the combined initiative that we expect and that's what we expect and that's what we are executing against. Most of that revenues coming on in the second half and that's what is causing the second half to grow at an even faster rate.

Robert Majek -- Raymond James -- Analyst

And maybe just one more for me. You touched up in the prepared remarks, but can you just help us bit more about the Realtime streaming product. Who the initial customers are, and use cases you're targeting and whether you've had any traction converting trials to pay customers?

Robert A. Lento -- President, Chief Executive Officer and Director

So this is Bob. So the early adopters tend to be the companies involved in betting, mainly sports betting but also casino betting and auctions, and so that's where the initial traction is. We're seeing, from an early adopter perspective, several of those deals were closed in Q1 and depending on the size of the customer, some of the smaller ones have already gone into production, some of the larger ones need to build some capabilities on the player side that caused the ramp to be slower. But the pipeline is, I would say, very strong at this point. We have many customers doing trials and we expect to close more in Q2 than we did in Q1.

Sajid Malhotra -- Chief Financial Officer

And we have customers in production.

Robert A. Lento -- President, Chief Executive Officer and Director

Yes. As I said, some of the smaller ones went into production pretty quickly.

Robert Majek -- Raymond James -- Analyst

Appreciate it.

Robert A. Lento -- President, Chief Executive Officer and Director

You're welcome.

Operator

The next question comes from Jonathan Charbonneau of Cowen and Company. Please Go ahead.

Jonathan Charbonneau -- Cowen and Company -- Analyst

Great. Thanks for taking the questions. You noted that demand is picking up. Is there anything in particular you would call out that is driving that both more broadly from an industry perspective, as well as for you guys? And has there been any change to what you're seeing from your largest customers and doing a DIY? Thanks.

Sajid Malhotra -- Chief Financial Officer

So on the DIY front, we haven't seen any acceleration of that. We also haven't seen any of the customers that over the last few years built some capacity themselves. We're not seeing them abandon that. So I would say that's largely no change there. A lot of the momentum that we're seeing is both specific to Limelight and industry. So from an industry perspective, we're seeing more and more of the content that is available on both broadcast and through Internet connected devices being consumed through the Internet connected devices. I think it was HBO after the first Game of Thrones, last Sunday came out and said that they had a record number of users watching through either HBO Go or HBO Now. And so we're seeing more and more of that, whether it's a sporting event, I think CBS, said as well regarding the Super Bowl that they saw more, more users online than ever before. And so I think we're seeing more and more of that, and in fact, you're starting to see some events that are now going to be available only through Internet-connected devices. A good example of that is, it was publicly announced that Amazon Prime Video won the rights for the English Premier League starting in the fall of this year, and obviously given who they are, it's only available through Internet-connected devices.

So I think, we're seeing more and more growth in terms of the number of offerings available and user preference shifting to consuming it on devices that are different than broadcast connected devices. And so I think the industry is moving in that direction. You've seen the announcements by Apple with Apple plus and Disney with Disney plus further examples. But then in addition to that, some of it is Limelight specific, so there are customers that in some cases, we've been talking to for years that we expect in the first half of this year to onboard and start moving significant traffic through Limelight's Content Delivery Network. So, we're excited about that -- as I said in my prepared comments, we're excited about the industry and the macro trends in terms of where that's going. But we're also excited about the willingness that we're seeing as we sit here today for large customers to include Limelight as part of their solution to satisfying their end users.

Robert A. Lento -- President, Chief Executive Officer and Director

And let me just add, I mean, we embark on a multi-year strategy. So four or five years ago, we kind of looked at the CDN business that we were in and said we want to focus on the large file piece of it. That was software gaming and video. Over the course of the last 18 months, 24 months, we said within that our efforts are best suited for video live and streaming as well as video on demand and short video. So we went down that path, and I think what you're seeing today is kind of the result of that focus and that emphasis and that investment that is coming to bear where we are getting finally out share the business.

Now as you go forward, we think that the next leg of this journey is around latency and so we are spending a lot of time and energy and effort to reduce latency within video as well as to bring decisioning to the edge. So this is the path that we're on and that's where we see the market going and that's why we think we can be differentiated in those markets and we continue to put the effort there.

Jonathan Charbonneau -- Cowen and Company -- Analyst

Great. Thank you.

Sajid Malhotra -- Chief Financial Officer

Thanks.

Robert A. Lento -- President, Chief Executive Officer and Director

Thanks, Jon.

Operator

The next question comes from Mark Kelleher of D.A. Davidson. Please go ahead.

Mark Kelleher -- D.A. Davidson -- Analyst

Great. Thanks for taking the questions. You mentioned that you had a record traffic amount in the quarter and yet gross margin is tend to be under some pressure both sequentially and certainly year-over-year. Can you just give us some dynamics on what you're seeing competitively in terms of pricing? Has there been any change in your philosophy as to how to trade revenue and gross margin, and more importantly, what are your expectations for gross margins for the rest of the year?

Sajid Malhotra -- Chief Financial Officer

Sure. Great question, Mark. Thanks. First of all, I think, we expect gross margins for -- in Q1 to be the low point for the year. So just know that, that's kind of what we had in our plan. That's what we've experienced and we build from here. Second, I think it is partly the denominator, so when you have -- our costs when you see under the line didn't really change that much but the revenue stream changed by quite a bit between last year and this year. That is kind of driving the decline that you see in gross margin for the most part. And if you recall in the second quarter last year, we talked about major repricing with six of our large customers, et cetera that had some impact et cetera. So much of this is not so much as an industry that has all of a sudden changed and pricing has changed a lot, it is unique to us and where we were in that journey and where we are today.

So at the same time, we didn't try to optimize for the gross margin answer. So we could have (inaudible) a better gross margin by cutting expenses and costs and reducing our bandwidth and not expanding and keeping up with quality, but we know what's coming downstream in Q2, Q3, Q4. So we've continued to maintain what we have and invest for what we need for Q3 -- Q2 and beyond. And so I think it's kind of a little bit of a mismatch and this kind of gets to the heart of the story, which is this is why in part we don't focus on the quarterly results and quarterly guidance and instead try to deliver against the full year numbers that we've set for ourselves.

Mark Kelleher -- D.A. Davidson -- Analyst

But you think that gross margin number can step up from here?

Sajid Malhotra -- Chief Financial Officer

It has to.

Robert A. Lento -- President, Chief Executive Officer and Director

Absolutely.

Sajid Malhotra -- Chief Financial Officer

Yes. This is the low point, it will step up from here and it is consistent with our long-term plan in terms of what we need to get to. So we are focused on delivering against those numbers, yes.

Mark Kelleher -- D.A. Davidson -- Analyst

Okay. And you mentioned you had 14 Ericsson POPs online. Did those contribute revenue in the quarter?

Sajid Malhotra -- Chief Financial Officer

Not a meaningful amount. They came on through the quarter. So, again we're focused on Ericsson providing meaningful revenue in the back half -- second half of the year. I think as you can imagine, we started with the smaller locations. We're ramping traffic slowly to make sure that we fully understand the environment and make sure that everything is set up properly. So the initial ones tended to be the smaller ones and we're going slower with them than we will on the future ones, but we still believe in the second half of this year that they will help us both on the cost side as well as the revenue side. There is two parts to this deal, right. One of it affects our -- part of it affects our gross margin and the other part affects our revenue.

Mark Kelleher -- D.A. Davidson -- Analyst

Okay. Last question. Were there any 10% customer in the quarter?

Sajid Malhotra -- Chief Financial Officer

Only one. Same as it has been in some time, which is Amazon -- Amazon Prime Video, to be specific.

Yes. Thank you very much. A couple of questions. As you referred to edge computing, you spoke about some mega trials. Is that -- are you talking about Limelight's specific mega trials, and if yes, then can you just talk about what sort of use cases, what sort of industries are we talking about? Secondly, you pointed out the kind of industrial growth we're seeing because of OTT and other forms of online video. As you think about it being kind of a tailwind over the next couple of years, can you just speculate on what percentage of that traffic will go through third-party CDNs versus probably be done in-house through DIY solutions? And lastly, it is good to hear about your -- that all the broadcasters are now working with you. Can you basically give us a sense of what sort of traffic are you carrying for them and any sort of RAM expectations that you have in your sort of '19 guidance? Thank you.

Robert A. Lento -- President, Chief Executive Officer and Director

Sameet, let me take a first crack at and then Sajid could add that on and I'll just admit that I didn't catch at tall the second question because I was writing some stuff down. So the last question was on the ramping of the large customers. Obviously, we don't comment on any individual customer, but what I would tell you is those are customers that are ramping through Q1 and Q2 and will be fully ramped up by the third quarter. And then it's a matter of us; there are mainly environments that where there are multiple CDNs. So it's about us maintaining and winning market share based on quality, as well as the OTT provider themselves growing market share in the OTT space. And so generally speaking, a lot of good progress on some pretty big names where we have not been a provider at least as long as I've been at Limelight. They're ramping now and I expect that they'll be fully ramped going into the third quarter.

The first question was on use cases. For the kind of what we call the mega deals that we're working on, and so the whole purpose of the -- not the whole purpose, but one of the benefits of the Ericsson relationship was the idea that we would be even closer to the edge than we are today because we would be embedded inside service provider networks. And Ericsson themselves is developing a very strong IoT strategy that will ride on this infrastructure. So that's one use case. But the other big one is, we're seeing in gaming, where low latency is extremely important to maintain the right user experience. So those are the two big ones that we're seeing is, everything around IoT which fits with the strategy with Ericsson and then because we are close to the edge and can provide low latency almost everywhere in the world, we're seeing a lot of interest on the gaming front. And the second question was

Sameet Sinha -- B. Riley FBR -- Analyst

Just OTT and third-party online video.

Robert A. Lento -- President, Chief Executive Officer and Director

I'm sorry, Sameet...

Sameet Sinha -- B. Riley FBR -- Analyst

I'm just -- the question was basically, as we see OTT (inaudible) Disney or Apple or Warner Media, NBC all of them coming out over the next 12 months, how -- what do you expect this increase in traffic, how much of that would be carried by third-party CDNs versus in-house?

Robert A. Lento -- President, Chief Executive Officer and Director

Okay. Yes. I mean, obviously, we're having discussions with all the major OTT providers and based on the discussions we're having, I believe that the majority and in many cases all of that traffic will be handled by, quote-unquote, third-party CDNs or not their own in-house capacity or capability. That's not universally true, but I certainly see large majority of that traffic going through companies like Limelight and our competitors. So I think it's good for the industry. The trends are very, very strong for the industry and I don't see a lot of interest on the part of the OTT provider to lay out the capital and the time it takes to develop for software and to develop their own in-house capabilities. And as I said one to one of the earlier questions, I also don't see the people that have some in-house capability abandoning that anytime soon, but the majority of the people that we're talking to were are looking at companies Limelight and companies like Limelight to handle that traffic.

Great. Thanks. Several from me. I think, first, maybe just on the EBITDA side. I think you commented a couple of times, the quarter was largely as expected. I think you're maybe specifically referring to revenues, if I understood the context just. If you would correlate that to EBITDA, was that what you expected it for the quarter?

Sajid Malhotra -- Chief Financial Officer

So, I didn't break out, but I said in line with what we were expecting kind of some elements with a little bit ahead, some were a little bit behind, but generally, as we looked at our budget plan and forecast and where the quarter landed, roughly in line. I didn't break out line item my line item.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Okay. So, referring in general, EBITDA and revenue would both fall under that umbrella. So, yes, I guess this is what you are saying.

Sajid Malhotra -- Chief Financial Officer

Correct. Margin, earnings per share, yes.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Okay. Then, S&M up a couple million sequentially on down revs, and I know there's some changes in the sales or but incremental dollars. So just can you talk a little more quantitatively how many reps now versus a year ago -- what is that incremental spend? Is this the likely sustained rate going forward, how do we think about that?

Sajid Malhotra -- Chief Financial Officer

I mean, it is likely sustained rate going forward. We brought Tom on, we gave him some latitude and we did some of this last year even before Tom came on board to build the team out. Obviously, this is a very, very big market. And in terms of sales force and marketing spend, we, in many cases, are a lot less than our competition trying to cover the same market, albeit we're -- I think a little bit more focused in terms of the customers that we're going after. But we have probably somewhere in the range of 10% more feet on the street today than we had last year at this time in round numbers. And I think we'll see that grow through the year, but nothing dramatic. We're not doubling sales and marketing spend, but we'll see increased spend in that area as the year progresses.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Capacity, I know, Ericsson was one passed incremental capacity, better performance, all kinds of advantages being inside other networks. Outside of that capacity build, which it seems like you're executing pretty quickly on, it sounded like in your prepared remarks that you may be up to your aggression on building X capacity outside of Ericsson. Can you just confirm that and maybe give a little more color what was the driver, was that the networks or the OTT something else?

Robert A. Lento -- President, Chief Executive Officer and Director

So it's -- so the answer is, you're right. We are building capacity outside of Ericsson. We're doing that in two ways. One is, we've spent the last year and a half designing the next big change or next generation of our network software and that is going into production this quarter and will take us probably through the end of the year to get that completed. And when it is completed, we believe it will add at least 20% global capacity. And basically what that's doing is making the existing servers more efficient, so that they're pumping out more per second. And so that's a great way for us to get better returns on the use of capital that is deployed against that. And so that's a big innovation that Kurt Silverman and his team have been working on. And then in addition to that that does it makes everything that we already have more efficient, but it doesn't give you coverage in locations where you even need more diversity because we've got too much going through a single location and we need some diversity to get better redundancy or some locations where our customers are just asking us to go and we've had plans to get there. So it's software driving capacity, it's some geographic diversity In advance of what we're doing with Ericsson, and then the Ericsson capacity that we're adding as well.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Okay. And last one for me. Then, on the guide about sort of the visibility question to the annual guide. You've done a great job over the last several years of driving up customer satisfaction and retention. I think you commented a record low churn. Can you just talk to what's built into that forward guide with respect to new customer capture -- new customer capture somewhat of new territory for you? You've got a new Head of Sales, you've got new sales infrastructure, your grown reps. How dependent is the guide on success from the new sales effort?

Robert A. Lento -- President, Chief Executive Officer and Director

So, I'm going to make one comment and turn it over to Sajid. But the large majority of it is coming from either existing customers or customers that have been closed and are onboarding. And I don't want to downplay the risk, right. I mean, our customers have to continue to be successful, we have to continue to be successful with them, and customers that are ramping, they need to ramp with us on our schedule and sometimes that doesn't always happen the way we wanted to. And so, we've got obviously more than one customer that's ramping at a time. But the risk elements are we want to keep growing with our existing customers and we have a history of doing that. We've already signed some very attractive deals that -- with customers that are large enough to make a material difference in our revenue and we're in the process of onboarding them.

And then lastly, obviously, we're relying on the sales force to -- which has a strong pipeline to close more deals as we sit here in April. They will contribute in Q3, but especially in Q4. And so those are the variables that we manage every day.

Sajid Malhotra -- Chief Financial Officer

And Jeff, we've talked about this, right. So this is multi-dimensional and we try to attack it from a few different ways. For example, it's important for us to reduce the customer churn and to get the customer account growing again. Now, in the past, as it's declining that's a headwind to revenue of about $4 million and $4.5 million. In addition, we have all this revenue that I said coming on-board high single digits from these initiatives that we have. So if you can eliminate the headwind of $4 million and $4.5 million, add let's just say, somewhere between $7 million and $10 million from these new initiatives that's $15 million of the $25 million that you need to get to the midpoint of our guidance. The other $10 million is just base business growing. That's the way we're thinking about the business, building of the business, executing against the business and trying to get our job that.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Got it. Great. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Sajid Malhotra for any closing remarks.

Sajid Malhotra -- Chief Financial Officer

Thanks. Yes, I just have a couple of closing remarks. So, again, business trends are improving. We believe in the projected growth rate based on plan, based on momentum, comps and trajectory. And long term, I think we are increasingly confident of (inaudible) 15% free cash flow model that is 25% EBITDA less 10% CapEx.

Today, we're focused on growing based on capacity and capability with a customer set that we want in a traffic profile and type B target. We are investing in core capability and capacity. There's a lot of capacity becoming available as we use software and the entire infrastructure becomes a lot more efficient. Software is making a 30% to 50% more capacity available from deployed infrastructure over an 18-month to 24-month period.

Last year, we delivered record traffic and only spent $17 million of CapEx across the whole Company. This year, we'll do something similar. We'll spend between $20 million and $24 million to add physical capacity and new software to make the entire capacity more efficient. And then, there's more efficient capacity becoming available at very attractive economic terms with Ericsson.

At the same time, to create momentum with customers, Realtime streaming is getting a great response. Edge is a very unique and transformative opportunity. I'm sure you'll see it too, be our advantage because of our small size and just a handful of deals can change the complexion of Limelight. Our leadership changes have been very, very positive. And with that, we guided the Street to numbers that are consistent with our internal plan numbers. And I think this Company will look and feel very different by this time next year. We are focused on executing our plan. Compared to what the Company looked like when we made the recent highs, this is a fundamentally different company with a better business outlook and better momentum. And as a sign of a confidence to align our interests with our shareholders, Bob, Mike and I are taking 50% of a base salary in equity. So this is what we're trying to get done and we will report on our progress against this expectation when we report in July.

Thank you again, and as always, we are available to answer any additional questions after the call. Thank you operator. And with that, we conclude the call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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